Borrower defense to repayment

How it works

It is a U.S. Department of Education process, separate from bankruptcy. If the Department approves an application, it discharges any remaining balance on the federal student loans taken out to attend the school and may also refund payments already made. 1

According to StudentAid.gov, the usual reason people apply is that they believe their school misled them or lied about something central to their decision to enroll. Past examples include false promises about getting a job after graduation, earning a certain salary or transferring credits. 1

A bankruptcy discharge works differently. In bankruptcy, student loans are generally not discharged unless repaying them would impose an undue hardship on the debtor and the debtor's dependents. Borrower defense turns on what the school did. 2 1

The rules are unsettled. StudentAid.gov reports that a court order has put the most recent borrower defense regulation on hold until the case is decided, and that borrowers may still apply while the order is in effect. Check StudentAid.gov for the current rules before relying on any summary. 1